China threatens EU over jet tax

THE "environmental squeeze" that helped prompt British Airways owner IAG's takeover of BMI is set to ignite a trade war between China and Europe after the EU's top court upheld a move to charge airlines using the Continent's airspace for their greenhouse gas emissions.

Beijing yesterday threatened disruptions to trade with the EU after the European Court of Justice ruled on Wednesday that the emissions tax would go ahead as planned on 1 January.

The move added China's voice to that of America, which last week warned that it would take "appropriate action" if the proposed charges were not amended or delayed.

The state-run Xinhua News Agency, which acts as the Chinese government's mouthpiece, said: "This is a trade barrier in the name of environmental protection and will strike a blow to passenger benefits and the international airline industry. It will be difficult to avoid a trade war focused on an aviation 'carbon tax'."

The European Commission has calculated that costs per passenger could rise by about AUD$32 on a return transatlantic flight as a result of the emissions charge.

The ruling from the European Court of Justice will intensify the pressure on airlines exerted by environmental concerns, adding to the woes of an industry already reeling from high fuel costs and the weak US and European economies.

The takeover of BMI, by BA and Iberia owner IAG, was prompted by its desire to secure lucrative landing slots at Heathrow, after a third runway at the international airport was finally ruled out last year on environmental grounds.

Edward Stanford, an analyst at Oriel Securities, said: "Heathrow landing slots are as rare as hen's teeth. The only way to get more is to buy another airline which has them."

BA is expected to utilise BMI's landing slots far more efficiently, by significantly increasing the size of the planes using many of them.